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Stocks for the Long Run: Baxter International vs. the S&P 500

A long history of returns.

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how members of the S&P 500 have performed compared with the index itself.

Step on up, Baxter International(NYSE: BAX).

Baxter International shares have slightly underperformed the S&P 500 over the last three decades:

Source: S&P Capital IQ.

Since 1980, shares returned an average of 10% a year, compared with 11.1% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1980 would be worth $29,400 today. In Baxter International, it'd be worth about $21,000.

Dividends accounted for a lot of those gains. Compounded since 1980, dividends have made up two-thirds of Baxter International's total returns. For the S&P, dividends account for 41.5% of total returns.

Now have a look at how Baxter International earnings compared with S&P 500 earnings:

Source: S&P Capital IQ.

Pretty good outperformance here. Since 1995, earnings per share have grown by an average of 9.9% a year, compared with 6% a year for the broader index.

What's it all meant for valuations? Baxter International has traded for an average of 24 times earnings since 1980 -- markedly higher than the 21 times earnings for the broader S&P 500.

Through it all, returns have been slightly disappointing over the last three decades.

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Baxter International with a five-star rating (out of five). Do you disagree? Leave your thoughts in the comment section below, or add Baxter International to My Watchlist.